fp0001198_ex10-1.htm


     

    
      Exhibit
10.1

      EXCHANGE
AGREEMENT

      


      This
EXCHANGE AGREEMENT (the “Agreement”), dated as of
December 11, 2009, is being entered into by and between Workstream Inc., a
corporation existing pursuant to the Canada Business Corporations Act, with
offices located at 495 March Road, Ottawa, Ontario, Canada K2K-3G1 (the “Company”), and
___________________________ (the “Holder”).

      


      RECITALS

      


      A.        The
Company, the Holder and various others entered into that certain Transaction
Agreement, dated as July 25, 2007 (as amended and modified by the 2008 Exchange
Agreement and the Other 2008 Exchange Agreements (as defined below), the “Transaction
Agreement”).

       

      B.        Simultaneously
with the consummation of the transactions contemplated by the Transaction
Agreement, (i) the Company, the Holder and various others entered into that
certain Registration Rights Agreement dated as of August 3, 2007, as amended and
restated in its entirety on August 29, 2008 (the “Registration Rights
Agreement”) and (ii) the Company issued and sold to the Holder for
$__________ a special warrant initially convertible into __________ of the
Company’s common shares, no par value (the “Common Shares”) (the “Special Warrant”) and a
warrant initially exercisable for __________ Common Shares (the “2007 Warrant”).

      


      C.        Various
Triggering Events (as defined in the Special Warrant) occurred under the Special
Warrant after its issuance, and the Company and the Holder entered into that
certain Exchange Agreement, dated as August 29, 2008 (as amended and modified by
this Agreement and the Other Exchange Agreements (as defined below), the “2008 Exchange Agreement”), pursuant to which
the Holder exchanged its Special Warrant and 2007 Warrant in reliance upon the
exemption from registration provided by Section 3(a)(9) of the Securities
Act of 1933, as amended (the “1933 Act”) for (i) a senior
secured note in the original principal amount of $__________ (the “2008 Note”) and (ii) a warrant
initially exercisable for up to __________ Common Shares (the “2008 Warrant”).

      


      D.        In
connection with the transactions contemplated by the 2008 Exchange Agreement,
(i) each of the Subsidiaries (as defined below) executed a guaranty in favor of
the Holder (each a “Guaranty” and collectively the
“Guaranties”) pursuant
to which it guaranteed the obligations of the Company under the 2008 Note and
(ii) the 2008 Note was
secured by a first priority perfected security interest in all of the assets of
the Company and the Subsidiaries as evidenced by that certain Security
Agreement, dated as of August 29, 2008, by and among the Company, each of the
Subsidiaries, the Holder and the other parties thereto (the “Security Agreement” and,
together with the other security documents and agreements entered into in
connection with the 2008 Exchange Agreement, as each may be amended or modified
from time to time, collectively, the “Security
Documents”).

      


      E.        Since
the issuance of the 2008 Note, various Events of Default (as defined in the 2008
Note) have occurred thereunder.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      F.         In
exchange for the 2008 Note, the Company has authorized the issuance to the
Holder of (i) a senior secured non-convertible note, in the form attached hereto
as Exhibit
A (including all senior secured non-convertible notes issued in exchange
therefor or replacement thereof, the “Non-Convertible Note”), (ii) a
senior secured convertible note, in the form attached hereto as Exhibit
B (including all senior secured convertible notes issued in exchange
therefor or replacement thereof, the “First Convertible Note”), which
First Convertible Note shall be convertible into Common Shares (as converted,
the “First Convertible Note
Conversion Shares”), in accordance with
the terms thereof and (iii) a senior secured convertible note, in the form
attached hereto as Exhibit
C (including all senior secured convertible notes issued in exchange
therefor or replacement thereof, the “Second Convertible Note”), which
Second Convertible Note shall be convertible into Common Shares (as converted,
the “Second Convertible Note
Conversion Shares”), in accordance with
the terms thereof.

      


      G.        The
First Convertible Note and the Second Convertible Note are collectively referred
to herein as the “Convertible
Notes.” The Convertible Notes and the Non-Convertible Note are
collectively referred to herein as the “Notes.” The First Convertible
Note Conversion Shares and the Second Convertible Note Conversion Shares are
collectively referred to herein as the “Conversion Shares.” The Notes
and the Conversion Shares are collectively referred to herein as the “Securities.”

       

      H.        The
exchange of the 2008 Note for the Notes is being made in reliance upon the
exemption from registration provided by Section 3(a)(9) of the 1933
Act.

      


      AGREEMENT

      


      NOW,
THEREFORE, in consideration of the premises and the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Holder hereby
agree as follows:

       

      
        	
                1.

              	
                EXCHANGE
      OF 2008 NOTE.

              


      

       

      
             
(a)   2008 Note. Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Holder shall, and the Company shall, pursuant to Section 3(a)(9) of
the 1933 Act, exchange the 2008 Note for the Notes.

      

       

      (b)         Closing. The
closing (the “Closing”)
of the exchange of the 2008 Note shall occur at the offices of Greenberg
Traurig, LLP, 77 W. Wacker Drive, Suite 3100, Chicago, Illinois 60601. The date
and time of the Closing (the “Closing Date”) shall be 10:00
a.m., Chicago Time, on the first (1st)
Business Day on which the conditions to the Closing set forth in Sections 6 and
7 below are satisfied or waived (or such later date as is mutually agreed to by
the Company and the Holder). As used herein “Business Day” means any day
other than a Saturday, Sunday or other day on which commercial banks in Chicago,
Illinois are authorized or required by law to remain closed.

       

      (c)         Delivery. On the
Closing Date, (i) the Holder shall deliver the 2008 Note to the Company and
(ii) the Company shall exchange and deliver to the Holder the Notes for the
2008 Note, in all cases duly executed on behalf of the Company and registered in
the name of the Holder or its designee.

       

      
        
          
          

        

        
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                2.

              	
                HOLDER’S
      REPRESENTATIONS AND WARRANTIES.

              


      

       

      The
Holder represents and warrants to the Company:

       

      (a)         Organization;
Authority. The
Holder is an entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with the requisite power and
authority to enter into and to consummate the transactions contemplated by the
Exchange Documents (as defined below) to which it is a party and otherwise to
carry out its obligations thereunder. For purposes of this Agreement, “Exchange Documents” means this
Agreement, the Notes, the Security Documents, the Reaffirmations (as defined
below), the Amended and Restated Registration Rights Agreement (as defined
below), the Irrevocable Transfer Agent Instructions (as defined below), and each
of the other agreements and instruments entered into by the parties hereto in
connection with the transactions contemplated hereby and thereby.

       

      (b)         No Public Sale or
Distribution. The
Holder is (i) acquiring the Notes and (ii) upon conversion of the
Convertible Notes will acquire the Conversion Shares issuable upon conversion
thereof, in each case, for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; provided, however, by making
the representations herein, the Holder does not agree, or make any
representation or warranty to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the 1933 Act. The Holder is not a broker-dealer registered, or required to
be registered, with the United States Securities and Exchange Commission (the
“SEC”) under the 1934
Act (as defined below). The Holder is acquiring the Securities hereunder in the
ordinary course of its business. The Holder does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities in violation of any applicable securities
laws.

       

      (c)         Accredited Investor
Status. The
Holder is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D.

       

      (d)         Reliance on
Exemptions. The
Holder understands that the Securities are being offered and issued to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and the Holder’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the availability of such
exemptions and the eligibility of the Holder to acquire the
Securities.

       

      (e)         Information. The
Holder and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and issuance of the Securities which have been requested by the
Holder.  The Holder and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by the Holder or its advisors, if
any, or its representatives shall modify, amend or affect the Holder’s right to
rely on the Company’s representations and warranties contained herein or any
representations and warranties contained in any other Exchange Document or any
other document or instrument executed and/or delivered in connection with this
Agreement or the consummation of the transaction contemplated hereby. The Holder
understands that its acquisition of the Securities involves a high degree of
risk. The Holder has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.

       

      
        
          
          

        

        
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      (f)         No Governmental
Review. The
Holder understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the acquisition
of the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.

       

      (g)         Transfer or
Resale. The
Holder understands that except as provided in the Amended and Restated
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) the Holder shall have delivered to the Company an
opinion of counsel to the Holder (if requested by the Company), in a form
reasonably acceptable to the Company, to the effect that such Securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration, or (C) the Holder provides the Company with
reasonable assurance (which shall not include an opinion of counsel) that such
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A promulgated under the 1933 Act (or a successor rule thereto) (collectively,
“Rule 144”); (ii) any
sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined below) through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC promulgated thereunder; and (iii) neither the Company nor
any other Person is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.

       

      (i)          Validity;
Enforcement. This
Agreement has been duly and validly authorized, executed and delivered on behalf
of the Holder and shall constitute the legal, valid and binding obligations of
the Holder enforceable against the Holder in accordance with its terms, except
as such enforceability may be limited by general principles of equity or to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.

       

      (j)          No
Conflicts. The
execution, delivery and performance by the Holder of this Agreement and the
consummation by the Holder of the transactions contemplated hereby will not (i)
result in a violation of the organizational documents of the Holder or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Holder is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to the Holder, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of the Holder to
perform its obligations hereunder.

       

      
        
          
          

        

        
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      (k)         General
Solicitation. The
Holder is not acquiring the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar.

       

      
        	
                3.

              	
                REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

              


      

       

      The
Company represents and warrants to the Holder that:

       

      (a)         Organization and
Qualification. The
Company and each Subsidiary are entities duly organized and validly existing and
in good standing under the laws of the jurisdiction in which they are formed,
and have the requisite power and authorization to own their properties and to
carry on their business as now being conducted and as presently proposed to be
conducted. Each of the Company and each of the Subsidiaries is duly qualified as
a foreign entity to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, “Material Adverse Effect” means
any material adverse effect on (i) the business, properties, assets,
liabilities, operations (including results thereof), condition (financial or
otherwise) or prospects of the Company or any Subsidiary, individually or taken
as a whole, (ii) the transactions contemplated hereby or in the other Exchange
Documents or (iii) the authority or ability of the Company or any of the
Subsidiaries to perform their respective obligations under any of the
Transaction Documents (as defined in the Transaction Agreement), any of the 2008
Exchange Documents (as defined below) or any of the Exchange Documents. Other
than the Subsidiaries, there is no Person in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest. For
purposes of this Agreement, Workstream USA, Inc., a Delaware corporation, Paula
Allen Holdings, Inc., a Florida corporation, The Omni Partners, Inc., a Florida
corporation, 6FigureJobs.com, Inc., a Delaware corporation, and Workstream
Merger Sub Inc., a Delaware corporation, are collectively referred to herein as
the “Subsidiaries” and
each individually as a “Subsidiary.”

       

      
        
          
          

        

        
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      (b)         Authorization; Enforcement;
Validity. The
Company has the requisite power and authority to enter into and perform its
obligations under the Exchange Documents to which it is a party and to issue the
Securities in accordance with the terms thereof. Each Subsidiary has the
requisite power and authority to enter into and perform its obligations under
the Exchange Documents to which it is a party. The execution and delivery by the
Company of this Agreement and the other Exchange Documents to which it is a
party, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Notes and
the reservation for issuance and issuance of the Conversion Shares issuable upon
conversion of the Convertible Notes) have been duly authorized by the Company’s
board of directors, and (other than the filing with the SEC of one or more
Registration Statements (as defined in the Amended and Restated Registration
Rights Agreement) in accordance with the requirements of the Amended and
Restated Registration Rights Agreement and any other filings as may be required
by any state securities agencies) no further filing, consent or authorization is
required by the Company, its board of directors or its shareholders. The
execution and delivery by each Subsidiary of the Exchange Documents to which it
is a party, and the consummation by such Subsidiary of the transactions
contemplated thereby have been duly authorized by the board of directors of such
Subsidiary, and no further filing, consent or authorization is required by such
Subsidiary, its board of directors or its stockholders. This Agreement and the
other Exchange Documents to which it is a party have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or state
securities law. The Exchange Documents to which it is a party have been duly
executed and delivered by each Subsidiary, and constitute the legal, valid and
binding obligations of such Subsidiary, enforceable against such Subsidiary in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities law.

       

      (c)         Issuance of
Securities. The
issuance of the Notes has been duly authorized and, upon issuance in accordance
with the terms of the Exchange Documents, the Notes shall be validly issued,
fully paid and non-assessable and free from all taxes, liens, charges and other
encumbrances with respect to the issue thereof. As of the Closing, the Company
shall have reserved from its duly authorized capital stock not less than the
maximum number of Conversion Shares issuable upon conversion of the Convertible
Notes (without regard to any limitations on conversion of the Convertible Notes
set forth therein). Upon conversion in accordance with the Convertible Notes,
the Conversion Shares, when issued, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens,
charges and other encumbrances with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Shares.
Subject to the accuracy of the representations and warranties of the Holder in
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act. The offer and issuance of the Notes
is exempt from registration under the 1933 Act pursuant to the exemption
provided by Section 3(a)(9) thereof.

       

      
        
          
          

        

        
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      (d)         No
Conflicts. The
execution, delivery and performance by the Company of the Exchange Documents to
which it is party and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Notes, the Conversion Shares and the reservation for issuance of the
Conversion Shares) will not (i) result in a violation of the Articles of
Incorporation (as defined below) or other organizational documents of the
Company or any of the Subsidiaries, any capital stock of the Company or any of
the Subsidiaries or Bylaws (as defined below) of the Company or bylaws of any of
the Subsidiaries, (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of the
Subsidiaries is a party or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board (the “Principal
Market”) and including all applicable Canadian and Ontario laws, rules
and regulations) applicable to the Company or any of the Subsidiaries or by
which any property or asset of the Company or any of the Subsidiaries is bound
or affected except, in the case of clause (ii) or (iii) above, to the extent
such conflict, default, termination rights or violations, as the case may be,
could not reasonably be expected to have a Material Adverse Effect. The
execution, delivery and performance by each Subsidiary of the Exchange Documents
to which it is party and the consummation by such Subsidiary of the transactions
contemplated thereby will not (i) result in a violation of the Articles of
Incorporation or other organizational documents of the Company or any of the
Subsidiaries, any capital stock of the Company or any of the Subsidiaries or
Bylaws of the Company or bylaws of any of the Subsidiaries, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of the Subsidiaries is a party or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market and including all applicable Canadian laws,
rules and regulations) applicable to the Company or any of the Subsidiaries or
by which any property or asset of the Company or any of the Subsidiaries is
bound or affected except, in the case of clause (ii) or (iii) above, to the
extent such conflict, default, termination rights or violations, as the case may
be, could not reasonably be expected to have a Material Adverse
Effect.

       

      (e)         Consents. Neither
the Company nor any Subsidiary is required to obtain any consent, authorization
or order of, or make any filing or registration with, any court, governmental
agency or any regulatory or self-regulatory agency or any other Person in order
for it to execute, deliver or perform any of its respective obligations under or
contemplated by the Exchange Documents to which it is a party, in each case, in
accordance with the terms hereof and thereof. All consents, authorizations,
orders, filings and registrations which the Company or any Subsidiary is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and neither the Company nor any
Subsidiary is aware of any facts or circumstances which might prevent the
Company or any Subsidiary from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence. The Company is not in
violation of the requirements of the Principal Market and has no knowledge of
any facts or circumstances which could reasonably lead to delisting or
suspension of the Common Shares in the foreseeable future.

       

      (f)         Acknowledgment Regarding the
Holder’s Acquisition of Securities. The
Company acknowledges and agrees that the Holder is acting solely in the capacity
of an arm’s length party with respect to the Exchange Documents and the
transactions contemplated hereby and thereby and that the Holder is not (i) an
officer or director of the Company or any of the Subsidiaries, (ii) an
“affiliate” (as defined in Rule 144) of the Company or any of the Subsidiaries
or (iii) to its knowledge, a “beneficial owner” of more than 10% of the Common
Shares (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of
1934, as amended (the “1934
Act”)). The Company further acknowledges that the Holder is not acting as
a financial advisor or fiduciary of the Company or any of the Subsidiaries (or
in any similar capacity) with respect to the Exchange Documents and the
transactions contemplated hereby and thereby, and any advice given by the Holder
or any of its representatives or agents in connection with the Exchange
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Holder’s acquisition of the Securities. The Company further
represents to the Holder that the Company’s and each Subsidiary’s decision to
enter into the Exchange Documents has been based solely on the independent
evaluation by the Company, each Subsidiary and their respective
representatives.

       

      
        
          
          

        

        
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        (g)   No General Solicitation;
Placement Agent’s Fees. Neither
the Company, nor any of the Subsidiaries or affiliates, nor any Person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D promulgated by the SEC under the
1933 Act) in connection with the offer or issuance of the Securities. The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for Persons engaged
by the Holder or its investment advisor) relating to or arising out of the
transactions contemplated hereby.  Neither the Company nor any of the
Subsidiaries has engaged any placement agent or other agent in connection with
the offer or issuance of the Securities.

      

       

      (h)         No Integrated
Offering. None of
the Company, the Subsidiaries or any of their affiliates, nor any Person acting
on its or their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would require registration of any of the Securities under the 1933 Act,
whether through integration with prior offerings or otherwise, or cause this
offering of Securities (together with any other offering under the Other
Exchange Agreements) to require approval of shareholders of the Company under
any applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or
designated.  None of the Company, the Subsidiaries, their affiliates
nor any Person acting on their behalf will take any action or steps referred to
in the preceding sentence that would require registration of any of the
Securities under the 1933 Act or cause the offering of any of the Securities to
be integrated with other offerings.

       

      (i)          Dilutive
Effect. The
Company understands and acknowledges that the number of Conversion Shares will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue the Conversion Shares upon conversion of the Convertible
Notes in accordance with this Agreement and the Convertible Notes is absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other shareholders of the Company.

       

      (j)          Application of Takeover
Protections; Rights Agreement. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Articles of Incorporation,
Bylaws or other organizational document or the laws of the jurisdiction of its
incorporation or otherwise which is or could become applicable to the Holder as
a result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and the Holder’s ownership
of the Securities. The Company and its board of directors have taken all
necessary action, if any, in order to render inapplicable any stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Shares or a change in control of the Company or any of the
Subsidiaries.

       

      
        
          
          

        

        
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      (k)         SEC Documents; Financial
Statements. During
the two (2) years prior to the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements, notes and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC Documents”). The Company
has delivered to the Holder or its representatives true, correct and complete
copies of each of the SEC Documents not available on the EDGAR system. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to the
Holder which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(e) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein not misleading, in the light
of the circumstance under which they are or were made.

       

      (l)          Absence of Certain
Changes. Since
the date of the Company’s most recent audited financial statements contained in
a Form 10-K, there has been no material adverse change and no material adverse
development in the business, assets, liabilities, properties, operations
(including results thereof), condition (financial or otherwise) or prospects of
the Company or any of the Subsidiaries. Since the date of the Company’s most
recent audited financial statements contained in a Form 10-K, neither the
Company nor any of the Subsidiaries has (i) declared or paid any dividends, (ii)
sold any material assets outside of the ordinary course of business,
individually or in the aggregate, or (iii) made any material capital
expenditures, individually or in the aggregate. Neither the Company nor any of
the Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, liquidation or
winding up, nor does the Company or any Subsidiary have any knowledge or reason
to believe that any of their respective creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and the Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section
3(l), “Insolvent” means,
(I) with respect to the Company and the Subsidiaries, on a consolidated basis,
(i) the present fair saleable value of the Company’s and the Subsidiaries’
assets is less than the amount required to pay the Company’s and the
Subsidiaries’ total Indebtedness (as defined below), (ii) the Company and the
Subsidiaries are unable to pay their debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured or (iii) the Company and the Subsidiaries intend to incur or believe
that they will incur debts that would be beyond their ability to pay as such
debts mature; and (II) with respect to the Company and each Subsidiary,
individually, (i) the present fair saleable value of the Company’s or such
Subsidiary’s (as the case may be) assets is less than the amount required to pay
its respective total Indebtedness, (ii) the Company or such Subsidiary (as the
case may be) is unable to pay its respective debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured or (iii) the Company or such Subsidiary (as the case may
be) intends to incur or believes that it will incur debts that would be beyond
its respective ability to pay as such debts mature. Neither the Company nor any
of the Subsidiaries has engaged in business or in any transaction, and is not
about to engage in business or in any transaction, for which the Company’s or
such Subsidiary’s remaining assets constitute unreasonably small
capital.

       

      
        
          
          

        

        
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      (m)        No Undisclosed Events,
Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
reasonably expected to exist or occur with respect to the Company, any of the
Subsidiaries or their respective business, properties, liabilities, prospects,
operations (including results thereof) or condition (financial or otherwise),
that (i) would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Shares and which
has not been publicly announced or (ii) could have a Material Adverse
Effect.

       

      (n)         Conduct of Business;
Regulatory Permits. Neither
the Company nor any of the Subsidiaries is in violation of any term of or in
default under its Articles of Incorporation, any certificate of designation,
preferences or rights of any other outstanding series of preferred stock of the
Company or any of the Subsidiaries or Bylaws or their organizational charter,
certificate of formation or certificate of incorporation or bylaws,
respectively. Neither the Company nor any of the Subsidiaries is in violation of
any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or any of the Subsidiaries, and neither the Company
nor any of the Subsidiaries will conduct its business in violation of any of the
foregoing, except in all cases for possible violations which could not,
individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances that would reasonably lead to delisting
or suspension of the Common Shares by the Principal Market in the foreseeable
future. Since January 1, 2006, (i) the Common Shares have been listed or
designated for quotation on (as applicable) the Principal Market, the Boston
Stock Exchange or the Nasdaq Capital Market, (ii) trading in the Common Shares
has not been suspended by the SEC or the Principal Market and (iii) the Company
has received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Common Shares from the
Principal Market. The Company and each of the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

       

      
        
          
          

        

        
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      (o)         Foreign Corrupt
Practices.  Neither
the Company nor any of the Subsidiaries nor any director, officer, agent,
employee or other Person acting on behalf of the Company or any of the
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of the Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

       

      (p)         Sarbanes-Oxley
Act. The
Company and each Subsidiary is in compliance in all material respects with all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and all applicable rules and regulations promulgated by the
SEC thereunder that are effective as of the date hereof.

       

      (q)         Transactions With
Affiliates. Other
than as set forth on Schedule 3(q), none of the officers, directors or employees
of the Company or any of the Subsidiaries is presently a party to any
transaction with the Company or any of the Subsidiaries (other than for ordinary
course services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company or any of the Subsidiaries, any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, trustee or
partner.

       

      
        
          
          

        

        
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      (r)         Equity
Capitalization. As of
the date hereof, the authorized capital stock of the Company consists of (i)
unlimited Common Shares, of which 57,101,616 shares are issued and outstanding,
no shares are held in treasury, and 2,132,465 shares are reserved for issuance
pursuant to securities (other than the Convertible Notes) exercisable or
exchangeable for, or convertible into, Common Shares, and (ii) unlimited shares
of preferred stock, none of which, as of the date hereof, are issued and
outstanding. All of such outstanding shares are duly authorized and have been,
or upon issuance will be, validly issued and are fully paid and nonassessable.
12,573,653 shares of the Company’s issued and outstanding Common Shares on the
date hereof are owned by Persons who are “affiliates” (as defined in Rule 405 of
the 1933 Act and calculated based on the assumption that only officers,
directors and holders of at least 10% of the Company’s issued and outstanding
Common Shares are “affiliates” without conceding that any such Persons are
“affiliates” for purposes of federal securities laws) of the Company or any of
the Subsidiaries. Except as set forth on Schedule 3(r), to the Company’s
knowledge no Person owns 10% or more of the Company’s issued and outstanding
Common Shares (calculated based on the assumption that all Equivalents (as
defined in the Transaction Agreement), whether or not presently exercisable or
convertible, have been fully exercised or converted (as the case may
be) but taking account of any limitations on exercise or conversion (including
“blockers”) contained therein without conceding that such identified Person is a
10% stockholder for purposes of federal securities laws). Except as disclosed in
Schedule 3(r): (i) none of the Company’s or any Subsidiary’s capital stock is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company or any Subsidiary; (ii) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of the Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of the Subsidiaries is or may become
bound to issue additional capital stock of the Company or any of the
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of the Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of the
Subsidiaries or by which the Company or any of the Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
amounts filed in connection with the Company or any of the Subsidiaries; (v)
there are no agreements or arrangements under which the Company or any of the
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except pursuant to the Amended and Restated Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the
Company or any of the Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of the Subsidiaries is or may become
bound to redeem a security of the Company or any of the Subsidiaries; (vii)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (viii)
neither the Company nor any Subsidiary has any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and (ix)
neither the Company nor any of the Subsidiaries have any liabilities or
obligations required to be disclosed in the SEC Documents which are not so
disclosed in the SEC Documents, other than those incurred in the ordinary course
of the Company’s or the Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or could not have a Material Adverse
Effect.  The Company has furnished to the Holder true, correct and
complete copies of the Company’s Articles of Amendment, Articles of
Incorporation, as amended and as in effect on the date hereof (the “Articles of Incorporation”), and the
Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all
securities convertible into, or exercisable or exchangeable for, Common Shares
and the material rights of the holders thereof in respect thereto.

       

      
        
          
          

        

        
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      (s)         Indebtedness and Other
Contracts. Except
as disclosed on Schedule 3(s), neither the Company nor any of the Subsidiaries
(i) has any outstanding Indebtedness, (ii) is a party to any contract, agreement
or instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
“Indebtedness” of any
Person means, without duplication (A) all indebtedness for borrowed money, (B)
all obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, “capital leases” in
accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; and (z) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

       

      (t)          Absence of
Litigation. Except
as set forth on Schedule 3(t), there is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
the Subsidiaries, the Common Shares or any of the Company’s or the Subsidiaries’
officers or directors which is outside of the ordinary course of business or
individually or in the aggregate material to the Company or any of the
Subsidiaries.

       

      (u)         Insurance. The
Company and each of the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. Neither the Company nor
any such Subsidiary has been refused any insurance coverage sought or applied
for, and neither the Company nor any such Subsidiary has any reason to believe
that it will be unable to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.

       

      
        
          
          

        

        
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      (v)         Employee
Relations.  Neither
the Company nor any of the Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and the Subsidiaries
believe that their relations with their employees are good.  No
executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or
other key employee of the Company or any of the Subsidiaries has notified the
Company or any such Subsidiary that such officer intends to leave the Company or
any such Subsidiary or otherwise terminate such officer’s employment with the
Company or any such Subsidiary. No executive officer or other key employee of
the Company or any of the Subsidiaries is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer or other key employee (as the case may
be) does not subject the Company or any of the Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and the Subsidiaries
are in compliance with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.

       

      (w)        Title. Except
as set forth on Schedule 3(w), the Company and the Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them, in each case, free and clear of
all liens, encumbrances and defects except such as do not materially affect the
value of such property and do not interfere with the use made and proposed to be
made of such property by the Company and any of the Subsidiaries. Any real
property and facilities held under lease by the Company or any of the
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company or any of
the Subsidiaries.

       

      (x)         Intellectual Property
Rights. The
Company and the Subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, original works, inventions, licenses,
approvals, governmental authorizations, trade secrets and other intellectual
property rights and all applications and registrations therefor (“Intellectual Property Rights”)
necessary to conduct their respective businesses as now conducted and as
presently proposed to be conducted. None of the Company’s or the Subsidiaries’
Intellectual Property Rights have expired, terminated or been abandoned, or are
expected to expire, terminate or be abandoned, within three years from the date
of this Agreement.  The Company does not have any knowledge of any
infringement by the Company or any of the Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of the Subsidiaries, being threatened,
against the Company or any of the Subsidiaries regarding their Intellectual
Property Rights. The Company is unaware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and each of the Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.

       

      
        
          
          

        

        
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      (y)         Environmental
Laws. The
Company and the Subsidiaries (i) are in compliance with all Environmental Laws
(as defined below), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
permit, license or approval where, in each of the foregoing clauses (i), (ii)
and (iii), the failure to so comply could be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.  The term
“Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.

       

      (z)         Subsidiary
Rights. The
Company or one of the Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of the Subsidiaries as owned by the
Company or such Subsidiary.

       

      (aa)       Tax
Status. Except
as set forth on Schedule 3(aa), the Company and each of the Subsidiaries (i) has
timely made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has timely paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company and the Subsidiaries know of no basis for any
such claim. The Company is not operated in such a manner as to qualify as a
passive foreign investment company, as defined in Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended.

       

      (bb)       Internal Accounting and
Disclosure Controls. The
Company maintains internal control over financial reporting (as such term is
defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles, including that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) under the 1934 Act) that are reasonably
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure. Neither the Company nor any of the Subsidiaries has received any
notice or correspondence from any accountant or other Person relating to any
potential material weakness or significant deficiency in any part of the
Company’s internal control over financial reporting.

       

      
        
          
          

        

        
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      (cc)       Off Balance Sheet
Arrangements. There
is no transaction, arrangement, or other relationship between the Company or any
of the Subsidiaries and an unconsolidated or other off balance sheet entity that
is required to be disclosed by the Company in its 1934 Act filings and is not so
disclosed or that otherwise could be reasonably likely to have a Material
Adverse Effect.

       

      (dd)       Investment Company
Status. The
Company is not, and upon consummation of the exchange and issuance of the
Securities will not be, an “investment company,” an affiliate of an “investment
company,” a company controlled by an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as
amended.

       

      (ee)       Acknowledgement Regarding
the Holder’s Trading Activity. It is
understood and acknowledged by the Company (i) that the Holder has not been
asked by the Company or any of the Subsidiaries to agree, nor has the Holder
agreed with the Company or any of the Subsidiaries, to desist from purchasing or
selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term; (ii) that the Holder, and counter parties in
“derivative” transactions to which the Holder is a party, directly or
indirectly, presently may have a “short” position in the Common Shares which
were established prior to the Holder’s knowledge of the transactions
contemplated by the Exchange Documents, and (iii) that the Holder shall not be
deemed to have any affiliation with or control over any arm’s length counter
party in any “derivative” transaction. The Company further understands and
acknowledges that the Holder may engage in hedging and/or trading activities at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Conversion Shares
deliverable with respect to the Convertible Notes are being determined and (b)
such hedging and/or trading activities, if any, can reduce the value of the
existing stockholders’ equity interest in the Company both at and after the time
the hedging and/or trading activities are being conducted. The Company
acknowledges that such aforementioned hedging and/or trading activities do not
constitute a breach of this Agreement or any other Exchange Document or any of
the documents executed in connection herewith or therewith.

       

      (ff)       
Manipulation of
Price. Neither
the Company nor any of the Subsidiaries has, and to their knowledge no Person
acting on their behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company or any of the Subsidiaries to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to
purchase any other securities of the Company or any of the
Subsidiaries.

       

      
        
          
          

        

        
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      (gg)       U.S. Real Property Holding
Corporation.  Neither
the Company nor any of the Subsidiaries is or has ever been a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company and each Subsidiary shall so certify
upon the Holder’s request. The Common Shares do not derive, and have not at
any time during the previous five years derived, directly or indirectly
more than 50% of its fair market value from one or any combination of: (i) real
property situated in Canada, (ii) Canadian resource property and (iii) timber
resource properties (as such terms are defined for purposes of the Income Tax Act
(Canada)).

       

      (ii)         Shell Company
Status. The
Company is not, and has never been, an issuer identified in, or subject to, Rule
144(i).

       

      
        (jj)   Transfer
Taxes. On the
Closing Date, any stock transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the issuance of the
Securities to be acquired by the Holder will be, or will have been, fully paid
or provided for by the Company, and all laws imposing such taxes will be or will
have been complied with.

      

       

      (kk)       Bank Holding Company
Act.  Neither
the Company nor any of its Subsidiaries is subject to the Bank Holding Company
Act of 1956, as amended (the “BHCA”) and to regulation by
the Board of Governors of the Federal Reserve System (the “Federal
Reserve”).  Neither the Company nor any of its Subsidiaries or
affiliates owns or controls, directly or indirectly, five percent (5%) or more
of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

       

      (ll)         Disclosure. The
Company confirms that neither it nor any other Person acting on its behalf has
provided the Holder or any of its agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic
information. The Company understands and confirms that the Holder will rely on
the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Holder regarding the Company and the
Subsidiaries, their businesses and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company or any of the Subsidiaries is true and correct and does not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each press release issued by the
Company or any of the Subsidiaries during the twelve (12) months preceding the
date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not
misleading.  No event or circumstance has occurred or information
exists with respect to the Company or any of the Subsidiaries or its or their
business, properties, liabilities, prospects, operations (including results
thereof) or conditions (financial or otherwise), which, under applicable law,
rule or regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly announced or
disclosed. The Company acknowledges and agrees that the Holder is not making and
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
2.

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      (mm)     Ranking of Notes. No
Indebtedness of the Company or any of the Subsidiaries, at the Closing, will be
senior to, or pari
passu with, the Notes (other than the Other Notes, which will be pari passu with the Notes,
and all of the Other Notes are set forth on Schedule 3(mm)) in right of payment,
whether with respect to payment or redemptions, interest, damages, upon
liquidation or dissolution or otherwise. The Notes do not extinguish the
indebtedness evidenced by the 2008 Note and are not a novation thereof but
rather are given in replacement, and substitution of, the 2008
Note.

       

      
        	
                4.

              	
                COVENANTS.

              


      

       

      (a)         Best
Efforts. The
Holder shall use its best efforts timely to satisfy each of the conditions to be
satisfied by it as provided in Section 6 of this Agreement. The Company shall
use its best efforts timely to satisfy each of the conditions to be satisfied by
it as provided in Section 7 of this Agreement.

       

      (b)         Blue Sky.  If
required by applicable law, the Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary in order
to obtain an exemption for, or to, qualify the Securities for issuance to the
Holder at the Closing pursuant to this Agreement under applicable securities or
“Blue Sky” laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to the Holder on or prior to the Closing Date. The Company shall make all
filings and reports relating to the offer and issuance of the Securities
required under applicable securities or “Blue Sky” laws of the states of the
United States following the Closing Date.

       

      (c)         Listing.  The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Amended and Restated Registration Rights Agreement) upon each
national securities exchange and automated quotation system, if any, upon or
through which the Common Shares are then listed or quoted (subject to official
notice of issuance) and shall use its commercially reasonable efforts to
maintain such listing of all Registrable Securities from time to time issuable
under the terms of the Exchange Documents on such national securities exchange
or automated quotation system. The Company shall maintain the Common Shares’
authorization for quotation on the Principal Market, the New York Stock
Exchange, the Nasdaq Global Market, the Nasdaq Global Select Market, the Nasdaq
Capital Market or the “pink sheets” (each, an “Eligible Market”). The Company
shall not take any action which could be reasonably expected to result in the
delisting or suspension of the Common Shares on an Eligible Market. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4(c).

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      (d)         Fees. The
Company shall reimburse the Holder or its designee(s) for all costs and expenses
incurred by it or its affiliates in connection with the transactions
contemplated by the Exchange Documents (including, without limitation, all legal
fees and disbursements in connection therewith, documentation and implementation
of the transactions contemplated by the Exchange Documents and due diligence and
regulatory filings in connection therewith) up to $100,000, which amount shall
be paid by the Company by wire transfer of immediately available funds at the
Closing or upon termination of this Agreement so long as such termination did
not occur as a result of a material breach by the Holder of any of its
obligations hereunder (as the case may be). The Company shall be responsible for
the payment of any placement agent’s fees, financial advisory fees, or broker’s
commissions (other than for Persons engaged by the Holder) relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold the Holder harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys’ fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment.

       

      (e)         Pledge of
Securities.
Notwithstanding anything to the contrary contained in Section 2(g), the Company
acknowledges and agrees that the Securities may be pledged by the Holder in
connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder,
and if the Holder effects a pledge of Securities it shall not be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Exchange Document. The
Company hereby agrees to execute and deliver such documentation as a pledgee of
the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by the Holder.

       

      (f)         Disclosure of Transactions
and Other Material Information. The
Company shall, on or before 8:30 a.m., New York time, on the first (1st)
Business Day after the date of this Agreement, issue a press release (the “Press Release”) reasonably
acceptable to the Holder disclosing all the material terms of the transactions
contemplated by the Exchange Documents. On or before 8:30 a.m., New York time,
on the fourth (4th)
Business Day following the date of this Agreement, the Company shall file a
Current Report on Form 8-K describing all the material terms of the transactions
contemplated by the Exchange Documents in the form required by the 1934 Act and
attaching all the material Exchange Documents (including, without limitation,
this Agreement (and all schedules to this Agreement), the forms of the Notes and
the form of the Amended and Restated Registration Rights Agreement) (including
all attachments, the “8-K
Filing”). From and after the issuance of the Press Release, the Company
shall have disclosed all material, nonpublic information delivered to the Holder
by the Company or any of the Subsidiaries, or any of their respective officers,
directors, employees or agents (if any) in connection with the transactions
contemplated by the Exchange Documents. The Company shall not, and the Company
shall cause each of the Subsidiaries and each of its and their respective
officers, directors, employees and agents not to, provide the Holder with any
material, nonpublic information regarding the Company or any of the Subsidiaries
from and after the issuance of the Press Release without the express prior
written consent of the Holder. If the Holder has, or believes it has, received
any material, nonpublic information regarding the Company or any of its
Subsidiaries in breach of the immediately preceding sentence, the Holder shall
provide the Company with written notice thereof in which case the Company shall,
within two (2) Trading Days (as defined in the Notes) of the receipt of such
notice, if so requested by the Holder, make a public disclosure of all such
material, nonpublic information so provided. In the event of a breach of any of
the foregoing covenants by the Company, any of the Subsidiaries, or any of its
or their respective officers, directors, employees and agents (as determined in
the reasonable good faith judgment of the Holder), in addition to any other
remedy provided herein or in the other Exchange Documents, the Holder shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, any of the Subsidiaries, or any of its or their
respective officers, directors, employees or agents. The Holder shall not have
any liability to the Company, any of the Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents, for any such
disclosure. Subject to the foregoing, neither the Company, the Subsidiaries nor
the Holder shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of the Holder, to make any
press release or other public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations (provided that in the
case of clause (i) the Holder shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release).
Without the prior written consent of the Holder, the Company shall not (and
shall cause each of the Subsidiaries to not) disclose the name of the Holder in
any filing, announcement, release or otherwise unless required by applicable law
or regulations.

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      (g)         Amendment and Interpretation
of Transaction Agreement and 2008 Exchange Agreement. From and after the
Closing:

       

      (i)       
The term “Amended Registration Rights Agreement” in the Transaction Agreement
and the 2008 Exchange Agreement is hereby replaced with the term “Amended and
Restated Registration Rights Agreement.”

       

      (ii)        The
following term is added to the Transaction Agreement and the 2008 Exchange
Agreement: “Amended and
Restated Registration Rights Agreement” means that certain Second Amended
and Restated Registration Rights Agreement, dated as of December 11, 2009, by
and among the Company and the other parties thereto, as amended from time to
time.”

       

      (iii)       The
defined term “Securities” in the Transaction Agreement and the 2008 Exchange
Agreement is hereby amended to include the Conversion Shares.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      (iv)       Except
as otherwise expressly provided herein, (i) the Transaction Agreement, each
other Transaction Document, the 2008 Exchange Agreement and each other 2008
Exchange Document is, and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects, except that on and after the
Closing Date (A) all references in the Transaction Agreement to the
“Transaction Agreement,” “hereto,” “hereof,” “this Agreement,” “hereunder” or
words of like import referring to the Transaction Agreement shall mean the
Transaction Agreement as amended by this Agreement and the Other Exchange
Agreements, (B) all references in the other Transaction Documents to the
“Transaction Agreement,” “thereto,” “thereof,” “thereunder” or words of like
import referring to the Transaction Agreement shall mean the Transaction
Agreement as amended by this Agreement and the Other Exchange Agreements, (C)
all references in the 2008 Exchange Agreement to the “Exchange Agreement,”
“hereto,” “hereof,” “this Agreement,” “hereunder” or words of like import
referring to the 2008 Exchange Agreement shall mean the 2008 Exchange Agreement
as amended by this Agreement and the Other Exchange Agreements, and (D) all
references in the other 2008 Exchange Documents to the “2008 Exchange
Agreement,” “thereto,” “thereof,” “thereunder” or words of like import referring
to the 2008 Exchange Agreement shall mean the 2008 Exchange Agreement as amended
by this Agreement and the Other Exchange Agreements, and (ii) the
execution, delivery and effectiveness of this Agreement shall not operate as an
amendment of any right, power or remedy of the Holder under any Transaction
Document or any 2008 Exchange Document, nor constitute an amendment of any
provision of any Transaction Document or any 2008 Exchange Document and all of
them shall continue in full force and effect, as amended or modified by this
Agreement and the Other Exchange Agreements. For purposes of this Agreement, (1)
“Other 2008 Note
Holders” means, collectively, the holders (other than the Holder) of
Other 2008 Notes; (2) “Other
2008 Notes” means, collectively, the senior secured notes issued pursuant
to the Other 2008 Exchange Agreements; (3) “Other 2008 Exchange
Agreements” means, collectively, the separate exchange agreements, each
dated as of August 29, 2008, entered into between the Company and each of the
Other 2008 Note Holders, as may be amended from time to time; (4) “Other Note Holders” means,
collectively, the holders (other than the Holder) of Other Notes; (5) “Other Notes” means,
collectively, the (A) senior secured non-convertible notes and (B) senior
secured convertible notes, in each case, issued pursuant to the Other Exchange
Agreements, and shall include all senior secured notes issued in exchange
therefor or replacement thereof; (6) “Other Exchange Agreements”
means, collectively, the separate exchange agreements, each dated as of December
11, 2009, entered into between the Company and each of the Other 2008 Note
Holders, as may be amended from time to time; (7) “2008 Exchange Documents”
means, collectively, the 2008 Exchange Agreement, the 2008 Note, the Guaranties,
the Security Agreement, the Security Documents and all other agreements,
documents and instruments executed and delivered in connection with the
transactions contemplated thereby, all as may be amended from time to time; (8)
“Other 2008 Exchange
Documents” means, collectively, the Other 2008 Exchange Agreements, the
Other 2008 Notes and all other agreements, documents and instruments executed
and delivered in connection with the transactions contemplated thereby, all as
may be amended from time to time; (9) “Other Exchange Documents”
means, collectively, the Other Exchange Agreements, the Other Notes and all
other agreements, documents and instruments executed and delivered in connection
with the transactions contemplated thereby, as may be amended from time to time;
(10) “2008 Notes” means,
collectively, the 2008 Note and the Other 2008 Notes; (11) “2009 Notes” means,
collectively, the Notes and the Other Notes, and shall include all senior
secured notes issued in exchange therefor or replacement thereof; and (12)
“2008 Exchange
Agreements” means, collectively, the 2008 Exchange Agreement and the
Other 2008 Exchange Agreements.

       

      (h)         Rule 144. The
Company expressly acknowledges and agrees that for purposes of Rule 144(d) the
Holder shall be deemed to have acquired each of the Notes on August 3, 2007 and
that the holding period for it may be tacked onto the holding period of the 2008
Note and the Special Warrant. The Company agrees that it shall not (and shall
cause each of its officers, directors, employees and agents to not) take any
action or omit to take any action inconsistent with the foregoing. The Company
further agrees to take all actions necessary (including, without limitation, the
issuance by its legal counsel of any necessary legal opinions) to issue to the
Holder Conversion Shares that (subject to the Company being compliant with
Section 144(c)(1) only if the Holder becomes an affiliate of the Company after
the date hereof) are immediately freely tradable without restriction and not
containing any restrictive legend, all without the need for any action by the
Holder.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      (i)           Delaware
Reincorporation. The Company shall provide each shareholder entitled to
vote at a special or annual meeting of shareholders of the Company (the “Shareholder Meeting”), which
meeting shall be held no later than the first annual meeting of shareholders of
the Company that occurs after the date hereof, a proxy statement soliciting each
such shareholder’s affirmative vote at the Shareholder Meeting for approval of
resolutions (the “Resolutions”) providing for
the Company’s reincorporation as, conversion into, or similar transaction
pursuant to which the Company becomes a Delaware corporation (the “Delaware Reincorporation”)
(such affirmative shareholder approval being referred to herein as the “Shareholder Approval”), and
the Company shall use its commercially reasonable efforts to solicit its
shareholders’ approval of the Resolutions (which efforts shall include, without
limitation, the requirement to hire a reputable proxy solicitor) and to cause
the board of directors of the Company to recommend to the shareholders that they
approve the Resolutions. If the Shareholder Approval is obtained at the
Shareholder Meeting, then the Company shall effect the Delaware Reincorporation
promptly following the Shareholder Meeting (but in no event later than November
1, 2010) so long as effecting the Delaware Reincorporation will not directly
result in (i) the Company incurring fees and expenses in excess of $650,000 in
connection with seeking the Shareholder Approval and effecting the Delaware
Reincorporation (including, without limitation, fees for attorneys, accountants
and other professional advisors, proxy solicitation costs, taxes and share
redemption costs) or (ii) the Company’s failure of any of the Tests (as defined
in the Notes). If the Shareholder Approval is not so obtained at the Shareholder
Meeting and the Company has complied with all of the foregoing covenants in this
Section 4(i), then the Company shall have no further obligation to seek
shareholder approval for the Delaware Reincorporation or to effect the Delaware
Reincorporation.

       

      (j)           2008 Warrant. Without
implication that the contrary would otherwise be true, the Company agrees that
the Holder, in its sole discretion, may surrender its 2008 Warrant to the
Company for cancellation for no consideration by delivering written notice to
the Company, together with its 2008 Warrant, requesting that its 2008 Warrant be
cancelled.

       

      
        	
                5.

              	
                REGISTER;
      TRANSFER AGENT INSTRUCTIONS;
LEGEND.

              


      

       

      (a)         Register. The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Notes in which the Company shall record the name
and address of the Person in whose name each of the Notes have been issued
(including the name and address of each transferee), the principal amount of
each of the Notes held by such Person and the number of Conversion Shares
issuable upon conversion thereof. The Company shall keep the register open and
available at all times during business hours for inspection of the Holder or its
legal representatives.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      (b)         Transfer Agent
Instructions. The
Company shall issue irrevocable instructions to its transfer agent and any
subsequent transfer agent in the form reasonably acceptable to the Holder (the
“Irrevocable Transfer Agent
Instructions”) to issue certificates or credit shares to the applicable
balance accounts at The Depository Trust Company (“DTC”), registered in the name
of the Holder or its respective nominee(s), for the Conversion Shares in such
amounts as specified from time to time by the Holder to the Company upon
conversion of the Convertible Notes. The Company represents and warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5(b), and stop transfer instructions to give effect to Section
2(g) hereof, will be given by the Company to its transfer agent with respect to
the Securities, and that the Securities shall otherwise be freely transferable
on the books and records of the Company, to the extent provided in this
Agreement and the other Exchange Documents. If the Holder effects a sale,
assignment or transfer of the Securities in accordance with Section 2(g) hereof,
the Company shall permit the transfer and shall promptly instruct its transfer
agent to issue one or more certificates or credit shares to the applicable
balance accounts at DTC in such name and in such denominations as specified by
the Holder to effect such sale, transfer or assignment. In the event that such
sale, assignment or transfer involves Conversion Shares sold, assigned or
transferred pursuant to an effective registration statement or in compliance
with Rule 144, the transfer agent shall issue such shares to the Holder,
assignee or transferee (as the case may be) without any restrictive legend in
accordance with Section 5(c) below. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5(b) will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this
Section 5(b), that the Holder shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required. The Company
shall cause its counsel to issue the legal opinion referred to in the
Irrevocable Transfer Agent Instructions to the Company’s transfer agent on the
earlier of each Effective Date (as defined in the Amended and Restated
Registration Rights Agreement) or the date on which the Securities are eligible
to be sold pursuant to Rule 144. Any fees (with respect to the transfer agent,
counsel to the Company or otherwise) associated with the issuance of such
opinion or the removal of any legends on any of the Securities shall be borne by
the Company.

       

      (c)         Legends. The
Holder understands that the certificates or other instruments representing the
Convertible Notes shall bear any legend as required by the “blue sky” laws of
any state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):

       

      NEITHER
THE ISSUANCE AND SALE OF THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS NOTE NOR THE SECURITIES INTO
WHICH THIS NOTE IS CONVERTIBLE MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS
NOTE OR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE (AS APPLICABLE) UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES INTO WHICH THIS NOTE
IS CONVERTIBLE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE OR THE SECURITIES INTO
WHICH THIS NOTE IS CONVERTIBLE.

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      The
Holder understands that the certificates or other instruments representing the
Non-Convertible Note shall bear any legend as required by the “blue sky” laws of
any state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):

       

      THIS NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THIS NOTE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THIS NOTE.

       

      Notwithstanding
the foregoing, certificates evidencing the Conversion Shares shall not bear any
restrictive or other legends unless the Holder is an “affiliate” (as defined in
Rule 144) of the Company.

       

      
        (d)   Removal of
Legends.
Certificates evidencing the Notes and certificates evidencing the Conversion
Shares (if such certificates evidencing Conversion Shares are required to bear a
legend pursuant to Section 5(c) above) shall not be required to contain the
legend set forth in Section 5(c) above or any restrictive or other legend (i)
while a registration statement (including a Registration Statement) covering the
resale of such Notes or Conversion Shares (as the case may be) is effective
under the 1933 Act, (ii) following any sale of such Notes or Conversion Shares
(as the case may be) pursuant to Rule 144 (assuming that the transferor is not
an affiliate of the Company), (iii) if such Notes or Conversion Shares (as the
case may be) are eligible to be sold, assigned or transferred under Rule
144(b)(1) (provided that the Holder provides the Company with reasonable
assurances that such Notes or Conversion Shares (as the case may be) are
eligible for sale, assignment or transfer under Rule 144(b)(1), which shall not
include an opinion of counsel), (iv) in connection with a sale, assignment or
other transfer (other than under Rule 144) provided the Holder provides the
Company with an opinion of counsel to the Holder, in a generally acceptable
form, to the effect that such sale, assignment or transfer of such Notes or
Conversion Shares (as the case may be) may be made without registration under
the applicable requirements of the 1933 Act or (v) if such legend is not
required under applicable requirements of the 1933 Act (including, without
limitation, controlling judicial interpretations and pronouncements issued by
the SEC). If a legend is not required pursuant to the foregoing, the Company
shall no later than three (3) Trading Days following the delivery by the Holder
to the Company or the transfer agent (with notice to the Company) of a legended
certificate representing such Notes or Conversion Shares (as the case may be)
(endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect the reissuance and/or transfer, if applicable),
together with any other deliveries from the Holder as may be required above in
this Section 5(d), as directed by the Holder, either: (A) deliver (or cause to
be delivered to) the Holder a certificate representing such Notes or Conversion
Shares (as the case may be) that is free from all restrictive and other legends
or (B) in the case of Conversion Shares, credit the balance account of the
Holder’s or the Holder’s nominee with DTC with a number of Common Shares equal
to the number of Conversion Shares represented by the certificate or conversion
notice (as the case may be) so delivered by the Holder (the date by which such
certificate is required to be delivered to the Holder pursuant to the foregoing
is referred to herein as the “Required Delivery
Date”).

      

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      (e)         Failure to Timely Deliver;
Buy-In. If the
Company fails to use its best efforts to (i) issue and deliver (or cause to be
delivered) to the Holder within two (2) Trading Days following the Required
Delivery Date a certificate representing the Notes or Conversion Shares (as the
case may be) required to be so delivered by the Company to the Holder that is
free from all restrictive and other legends or (ii) in the case of Conversion
Shares, credit the balance account of the Holder’s or the Holder’s nominee with
DTC within two (2) Trading Days following the Required Delivery Date with such
number of Conversion Shares required to be so delivered by the Company, then, in
addition to all other remedies available to the Holder, the Company shall pay in
cash to the Holder on each day after such second (2nd)
Trading Day following the Required Delivery Date that such issuance or credit is
not timely effected an amount equal to 1% of the aggregate then-outstanding
principal amounts of the Notes. In addition to the foregoing, if the Company
fails to so properly deliver such unlegended certificates or so properly credit
the balance account of the Holder’s or the Holder’s nominee with DTC by the
Required Delivery Date, and if on or after the Required Delivery Date the Holder
purchases (in an open market transaction or otherwise) Common Shares to deliver
in satisfaction of a sale by the Holder of Common Shares that the Holder
anticipated receiving from the Company without any restrictive legend, then, in
addition to all other remedies available to the Holder, the Company shall,
within three (3) Trading Days after the Holder’s request and in the Holder’s
sole discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the
Common Shares so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate or credit the Holder’s
balance account shall terminate and such shares shall be cancelled, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates or credit the Holder’s DTC account representing such number of
Common Shares that would have been issued if the Company timely complied with
its obligations hereunder and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
Common Shares that the Company was required to deliver to the Holder by the
Required Delivery Date times (B) the Closing Sale Price (as defined in the
Convertible Notes) of the Common Shares on the Trading Day (as defined in the
Convertible Notes) immediately preceding the Required Delivery
Date.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      
        	
                6.

              	
                CONDITIONS
      TO THE COMPANY’S OBLIGATION TO EXCHANGE AND
  ISSUE.

              


      

       

      (a)         The
obligation of the Company hereunder to exchange and issue the Notes to the
Holder at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company’s sole benefit and may be waived by the Company at any time in
its sole discretion by providing the Holder with prior written notice
thereof:

       

      (i)         The
Holder shall have executed each of the Exchange Documents to which it is a party
and delivered the same to the Company.

       

      (ii)        The
Holder shall have delivered to the Company its 2008 Note.

       

      (iii)       The
representations and warranties of the Holder shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
originally made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such date),
and the Holder shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Holder at or prior
to the Closing Date.

       

      
        	
                7.

              	
                CONDITIONS
      TO HOLDER’S OBLIGATION TO EXCHANGE.

              


      

       

      (a)         The
obligation of the Holder hereunder to exchange its 2008 Note at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Holder’s sole
benefit and may be waived by the Holder at any time in its sole discretion by
providing the Company with prior written notice thereof:

       

      (i)         The
Company shall have duly executed and delivered to the Holder each of the
Exchange Documents to which it is a party, including the Notes.

       

      (ii)        Each
Subsidiary shall have duly executed and delivered to the Holder each of the
Exchange Documents to which it is a party.

       

      (iii)       The
Holder shall have received the opinion of Cozen O’Connor, the Company’s outside
U.S. counsel, and Perley-Robertson, Hill & McDougall LLP, the Company’s
Canadian counsel, in each case dated as of the Closing Date, in forms reasonably
acceptable to the Holder.

       

      (iv)       The
Company shall have delivered to the Holder a copy of the Irrevocable Transfer
Agent Instructions, in form reasonably acceptable to the Holder, which
instructions shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.

       

      (v)        The
Company shall have delivered to the Holder a certificate evidencing the
formation and good standing of the Company and each Subsidiary in such entity’s
jurisdiction of formation issued by the Secretary of State (or equivalent) of
such jurisdiction of formation as of a date within ten (10) days of the Closing
Date.

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      (vi)       The
Company shall have delivered to the Holder a certified copy of the Articles of
Incorporation within ten (10) days of the Closing Date.

       

      (vii)      The
Company shall have delivered to the Holder a certificate, in form reasonably
acceptable to the Holder, executed by the Secretary of the Company and each
Subsidiary and dated as of the Closing Date, as to (i) the resolutions
consistent with Section 3(b) as adopted by the Company’s or such Subsidiary’s
(as the case may be) board of directors and the Resolutions, each in a form
reasonably acceptable to the Holder, (ii) the Articles of Incorporation or its
other constituent documents (as the case may be) and (iii) the Bylaws or its
bylaws (as the case may be), each as in effect at the Closing.

       

      (viii)      Each
and every representation and warranty of the Company shall be true and correct
as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which shall be true and correct as of such date) and the Company shall have (and
the Company shall have caused each Subsidiary to have) performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
to be performed, satisfied or complied with by the Company or such Subsidiary
(as the case may be) at or prior to the Closing Date. The Holder shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by the Holder in form reasonably
acceptable to the Holder.

       

      (ix)       The
Company shall have delivered to the Holder a letter from the Company’s transfer
agent certifying the number of Common Shares outstanding on the Closing Date
immediately prior to the Closing.

       

      (x)        The
Common Shares (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market.

       

      (xi)       The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the issuance of the Securities, including
without limitation, those required by the Principal Market.

       

      (xii)      No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Exchange Documents.

       

      (xiii)      Since
the date of execution of this Agreement, no event or series of events shall have
occurred that reasonably would have or result in a Material Adverse
Effect.

       

      (xiv)     If
required, the Company shall have obtained approval of the Principal Market to
list or designate for quotation (as applicable) the Conversion
Shares.

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      (xv)      The
Company shall have delivered to the Holder appropriate financing statements on
Form UCC-1 or PPSA filings (as the case may be) to be duly filed in such office
or offices as may be necessary or, in the opinion of the Holder, desirable to
perfect the security interests purported to be created by each Security
Document.

       

      (xvi)     The
results of UCC searches, and searches for any tax or judgment lien filed against
the Company or any of the Subsidiaries or any of its or their respective
property, shall not show any Liens (as defined in the Notes) on any of the
Collateral (as defined in the Amended Security Agreement).

       

      (xvii)     Each
of the Other 2008 Note Holders shall have (i) executed the Other Exchange
Agreements, (ii) satisfied or waived all conditions to the closings
contemplated by such agreements and (iii) surrendered their Other 2008
Notes being exchanged at their respective closings.

       

      (xviii)   The
Company shall have amended the Amended and Restated Registration Rights
Agreement in the form attached hereto as Exhibit
D (the “Amended and
Restated Registration Rights Agreement”).

       

      (xix)     Each
of the Subsidiaries shall have executed and delivered to the Holder a
reaffirmation of its Guaranty in the form attached hereto as Exhibit
E (each a “Reaffirmation” and
collectively, the “Reaffirmations”).

       

      (xx)      The
Company and each of the Subsidiaries shall have amended the Security Agreement
in the form attached hereto as Exhibit
F (the “Amended Security
Agreement”).

       

      (xxi)     The
Company and each of the Subsidiaries shall have amended each of the other
Security Documents as reasonably requested by the Holder.

       

      (xxii)     The
Company shall have delivered to the Holder such other documents relating to the
transactions contemplated by this Agreement as the Holder or its counsel may
reasonably request.

       

      
        	
                8.

              	
                TERMINATION.

              


      

       

      In the
event that the Closing shall not have occurred on or before twenty (20) days
from the date hereof, then the Holder shall have the right to terminate its
obligations under this Agreement at any time on or after the close of business
on such date without liability of the Holder to any other party; provided,
however, the right to terminate this Agreement under this Section 8 shall not be
available to the Holder if the failure of the transactions contemplated by this
Agreement to have been consummated by such date is the result of the Holder’s
breach of this Agreement, provided further that no such termination shall affect
any obligation of the Company under Section 4(d) of this Agreement. Nothing
contained in this Section 8 shall be deemed to release any party from any
liability for any breach by such party of the terms and provisions of this
Agreement or the other Exchange Documents or to impair the right of any party to
compel specific performance by any other party of its obligations under this
Agreement or the other Exchange Documents.

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      
        	
                9.

              	
                MISCELLANEOUS.

              


      

       

      (a)         Governing Law; Jurisdiction;
Jury Trial. The
parties hereby agree that pursuant to 735 Illinois Compiled Statutes 105/5-5
they have chosen that all questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of Illinois, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Illinois or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Chicago, Illinois, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

       

      (b)         Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party. In
the event that any signature is delivered by facsimile transmission or by an
e-mail which contains a portable document format (.pdf) file of an executed
signature page, such signature page shall create a valid and binding obligation
of the party executing (or on whose behalf such signature is executed) with the
same force and effect as if such signature page were an original
thereof.

       

      (c)         Headings;
Gender. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement. Unless the context
clearly indicates otherwise, each pronoun herein shall be deemed to include the
masculine, feminine, neuter, singular and plural forms thereof. The terms
“including,” “includes,” “include” and words of like import shall be construed
broadly as if followed by the words “without limitation.” The terms “herein,”
“hereunder,” “hereof” and words of like import refer to this entire Agreement
instead of just the provision in which they are found.  For purposes
of this Agreement for the Holder’s benefit, the word “state” or “states”
includes any “province” or “provinces” in Canada and the concept of “law, rules
or regulations” includes laws, rules and regulations under applicable law, rules
and regulations in Canada.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      (d)         Severability.  If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. Notwithstanding anything to the contrary contained in this
Agreement or any other Exchange Document (and without implication that the
following is required or applicable), it is the intention of the parties that in
no event shall amounts and value paid by the Company and/or the Subsidiaries (as
the case may be), or payable to or received by the Holder, under the Exchange
Documents, including without limitation, any amounts that would be characterized
as “interest” under applicable law (including, without limitation, any
applicable Canadian or Ontario law), exceed amounts permitted under any such
applicable law. Accordingly, if any obligation to pay, payment made to the
Holder, or collection by the Holder pursuant the Exchange Documents is finally
judicially determined to be contrary to any such applicable law, such obligation
to pay, payment or collection shall be deemed to have been made by mutual
mistake of the Holder, the Company and the Subsidiaries and such amount shall be
deemed to have been adjusted with retroactive effect to the maximum amount or
rate of interest, as the case may be, as would not be so prohibited by the
applicable law. Such adjustment shall be effected, to the extent necessary, by
reducing or refunding, at the option of the Holder, the amount of interest or
any other amounts which would constitute unlawful amounts required to be paid or
actually paid to the Holder under the Exchange Documents. For greater certainty,
to the extent that any interest, charges, fees, expenses or other amounts
required to be paid to or received by the Holder under any of the Exchange
Documents or related thereto are held to be within the meaning of “interest” or
another applicable term to otherwise be violative of applicable law, such
amounts shall be pro-rated over the period of time to which they
relate.

       

      (e)         Entire Agreement;
Amendments. This
Agreement, the other Exchange Documents and the schedules and exhibits attached
hereto and thereto and the instruments referenced herein and therein supersede
all other prior oral or written agreements between the Holder, the Company,
their affiliates and Persons acting on their behalf solely with respect to the
matters contained herein and therein (provided that (i) except as expressly
contemplated elsewhere in this Agreement, the foregoing shall not have any
effect on any agreements the Holder has entered into with the Company or any of
its Subsidiaries prior to the date hereof and (ii) Section 4(c) hereof
supersedes Section 4(c) of the 2008 Exchange Agreement in its entirety), and
this Agreement, the other Exchange Documents, the schedules and exhibits
attached hereto and thereto and the instruments referenced herein and therein
contain the entire understanding of the parties solely with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Holder makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended or waived other than by an instrument in writing
signed by the Company and the Holder, provided that any party may give a waiver
in writing as to itself. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Other Exchange Documents unless the same consideration also is offered to the
Holder. The Company has not, directly or indirectly, made any agreements with
any other Person relating to the terms or conditions of the transactions
contemplated by the Other Exchange Documents which differs in any respect from
the terms and conditions set forth in the Exchange Documents. Without limiting
the foregoing, the Company confirms that the Holder has made not any commitment
or promise or has any other obligation to provide any financing to the Company,
any Subsidiary or otherwise.

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

       

      (f)         Notices. Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) Business Day after deposit with an overnight courier service
with next day delivery specified, in each case, properly addressed to the party
to receive the same. The addresses and facsimile numbers for such communications
shall be:

       

      If to the
Company:

       

      Workstream
Inc.

      485 N.
Keller Rd., Suite 500

      Maitland,
Florida 32571

      Telephone:  (407)
475-5500

      Facsimile:  (407)
475-5517

      Attention:  CEO

      


      With a
copy (for informational purposes only) to:

       

      Cozen
O’Connor

      1900
Market Street

      Philadelphia,
Pennsylvania 19103

      Telephone:  (215)
665-4141

      Facsimile:  (215)
665-2013

      Attention:  Michael
J. Heller, Esquire

       

      If to the
Holder:

       

      ___________________________

      ___________________________

      ___________________________

      ___________________________

      Telephone:
_______________

      Facsimile:
_______________

      Attention:
_______________

       

      With a
copy (for informational purposes only) to:

       

      ___________________________

      ___________________________

      ___________________________

      ___________________________

      Telephone:
_______________

      Facsimile:
_______________

      Attention:
_______________

       

      or to
such other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

       

      (g)         Successors and
Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of any of the
Securities. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Holder,
including, without limitation, by way of a Fundamental Transaction (as defined
in the Notes) (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
2008 Warrant). The Holder may assign some or all of its rights hereunder in
connection with transfer of any of its Securities without the consent of the
Company, in which event such assignee shall be deemed to be a Holder hereunder
with respect to such assigned rights.

       

      (h)         No Third Party
Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, other than the Indemnitees
referred to in Section 9(k).

       

      (i)         Survival. Unless
this Agreement is terminated under Section 8 in accordance with the terms
thereof, the representations, warranties, agreements and covenants shall survive
the Closing.

       

      (j)         Further
Assurances. Each
party shall (and the Company shall cause each Subsidiary to) do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

       

      (k)         Indemnification. In
consideration of the Holder’s execution and delivery of the Exchange Documents
to which it is a party and acquiring the Securities thereunder and in addition
to all of the Company’s and the Subsidiaries’ other obligations under the
Exchange Documents, the Company shall defend, protect, indemnify and hold
harmless the Holder and each affiliate of the Holder that holds any Securities
and all of their stockholders, partners, members, officers, directors, employees
and direct or indirect investors and any of the foregoing Persons’ agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”) from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company or any Subsidiary in any of the Exchange Documents, (b) any breach of
any covenant, agreement or obligation of the Company or any Subsidiary contained
in any of the Exchange Documents or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these
purposes a derivative action brought on behalf of the Company or any Subsidiary)
and arising out of or resulting from (i) the execution, delivery, performance or
enforcement of any of the Exchange Documents, (ii) any disclosure properly made
by the Holder pursuant to Section 4(f) or (iii) the status of the Holder or
holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Exchange Documents, except, with respect to
clause (c) above, to the extent (but only to the extent) such Indemnified
Liability arises from the Holder’s gross negligence or willful misconduct. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Amended and Restated
Registration Rights Agreement.

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

       

      (l)         No Strict
Construction. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

       

      (m)        Remedies.  The
Holder and each affiliate of the Holder that holds any Securities shall have all
rights and remedies set forth in the Exchange Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it or any Subsidiary fails to perform,
observe, or discharge any or all of its or their obligations under any of the
Exchange Documents, any remedy at law may prove to be inadequate relief to the
Holder. The Company therefore agrees, on behalf of itself and each Subsidiary,
that the Holder shall be entitled to seek specific performance and/or temporary,
preliminary and permanent injunctive or other equitable relief from any court of
competent jurisdiction in any such case without the necessity of proving damages
and without posting a bond or other security.

       

      (n)         Withdrawal
Right.
Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) the Exchange Documents, whenever the Holder exercises a
right, election, demand or option under an Exchange Document and the Company or
any Subsidiary does not timely perform its related obligations within the
periods therein provided, then the Holder may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company or such
Subsidiary (as the case may be), any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights

       

      (o)         Payment Set
Aside. To the
extent that the Company or any Subsidiary makes a payment or payments to the
Holder hereunder or pursuant to any of the other Exchange Documents or the
Holder enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company or any Subsidiary, a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
law, foreign, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred. Unless otherwise expressly indicated, all dollar amounts
referred to in this Agreement and the other Exchange Documents are in United
States Dollars (“US
Dollars”), and all amounts owing under this Agreement and all other
Transaction Documents shall be paid in US Dollars. All amounts denominated in
other currencies shall be converted in the US Dollar equivalent amount in
accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to
any amount of currency to be converted into US Dollars pursuant to this
Agreement, the US Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

      (p)         Independent Nature of the
Holder’s Obligations and Rights.  The
obligations of the Holder under the Exchange Documents are several and not joint
with the obligations of any Other Note Holder under the Other Exchange
Documents, and the Holder shall not be responsible in any way for the
performance of the obligations of any Other Note Holders under any Other
Exchange Documents. Nothing contained herein or in any other Exchange Document,
and no action taken by the Holder pursuant hereto or any Other Note Holder
pursuant to any Other Exchange Documents, shall be deemed to constitute the
Holder or any Other Note Holder as, and the Company acknowledges that the Holder
and the Other Note Holders do not so constitute, a partnership, an association,
a joint venture or any other kind of group or entity, or create a presumption
that the Holder and any Other Note Holder are in any way acting in concert or as
a group or entity with respect to such obligations or the transactions
contemplated by the Exchange Documents, the Other Exchange Documents or any
matters, and the Company acknowledges that the Holder and the Other Note Holders
are not acting in concert or as a group or entity, and the Company shall not
assert any such claim, with respect to such obligations or the transactions
contemplated by the Exchange Documents and the Other Exchange Documents. The
decision of the Holder to acquire the Securities pursuant to the Exchange
Documents has been made by the Holder independently of any Other Note Holder.
The Holder acknowledges that no Other Note Holder has acted as agent for the
Holder in connection with the Holder making its acquisition hereunder and that
no Other Note Holder will be acting as agent of the Holder in connection with
monitoring the Holder’s Securities or enforcing its rights under the Exchange
Documents. The Company and the Holder confirm that the Holder has independently
participated with the Company and the Subsidiaries in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
The Holder shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any of the other Exchange Documents, and it shall not be necessary for any
Other Note Holder to be joined as an additional party in any proceeding for such
purpose. To the extent that any of the Other Note Holders and the Company enter
into the same or similar documents, all such matters are solely in the control
of the Company and the Subsidiaries, not the action or decision of the Holder,
and would be solely for the convenience of the Company and the Subsidiaries and
not because it was required or requested to do so by the Holder or any Other
Note Holder. For clarification purposes only and without implication that the
contrary would otherwise be true, the transactions contemplated by the Exchange
Documents include only the transaction between the Company and the Holder and do
not include any other transaction between the Company and any Other Note
Holder.

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

      
        (q)   Delivery of
Securities.
Notwithstanding anything contained in this Agreement or any other Exchange
Document to the contrary, unless otherwise directed in writing by the Holder or
if being credited to the applicable balance accounts at DTC, the Company shall,
and shall cause its agents and representatives to, deliver all of the Holder’s
securities acquired pursuant to this Agreement (and all securities which are
issuable to the Holder pursuant to the terms of this Agreement or any other
Exchange Document) to the address for delivery of securities set forth on the
Holder’s signature page to this Agreement, and copies of the certificates
representing such securities shall be sent to the Holder to the address of the
Holder as set forth on the Holder’s signature page to this
Agreement.

      

       

      (r)         Most Favored
Nation. The
Company hereby represents and warrants as of the date hereof and covenants and
agrees from and after the date hereof that none of the terms offered to any
Person with respect to any amendment or waiver (each an “Amendment”) relating to the
terms, conditions and transactions contemplated by any Exchange Document or any
Other Exchange Document is or will be more favorable to such Person than those
of the Holder, and, if they are or become more favorable to any other Person,
this Agreement and the other Exchange Documents shall be, without any further
action by the Holder or the Company, deemed amended and modified in an
economically and legally equivalent manner such that the Holder shall receive
the benefit of the more favorable terms contained in such
Amendment.  Notwithstanding the foregoing, the Company agrees, at its
expense, to take such other actions (such as entering into amendments to the
Exchange Documents and the Transaction Documents) as the Holder may reasonably
request to further effectuate the foregoing. Notwithstanding the foregoing, the
foregoing provisions shall not apply to any settlement with any Person that
arises from or is entered into in connection with the settlement or disposition
of a dispute with or claim by such Person.

       

      [signature pages
follow]

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

       

      IN WITNESS WHEREOF, the Holder
and the Company have caused their respective signature page to this Agreement to
be duly executed as of the date first written above.

       

      


      
        	 	
                COMPANY:

                 

              
	 	
                WORKSTREAM
      INC.

                 

                By:
      _____________________

                Name:
      ___________________

                Title:  ____________________

              


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      IN WITNESS WHEREOF, the Holder
and the Company have caused their respective signature page to this Agreement to
be duly executed as of the date first written above.

       

      


      
        	 
      	
                HOLDER:

                 

              
	 
      	
                [Name]

                 

                 

                ______________________________

                By:

                Its:

                 

              
	 
      	 
      


      

      


       

      ADDRESS
FOR DELIVERY OF SECURITIES:

       

      _________________________

      _________________________

      _________________________

      Attention:__________________